Worker's Remittances in Mediterranean Partner Countries: The ...


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Worker's Remittances in Mediterranean Partner Countries: The ...

  1. 1. Workers Remittances in Mediterranean Partner Countries: The EIB’s work program Pedro J. F. de Lima Development Economics Advisory Service European Investment Bank Migration and Development Conference Washington DC, 24 May 2007
  2. 2. Workers’ Remittances: a lever for economic development <ul><li>EIB’s operational targets </li></ul><ul><li>Contribute to reduce remittances’ transfer costs, by promoting competition and disseminating information </li></ul><ul><li>Increased use of formal transfer channels, in particular through increased population access to banking services </li></ul><ul><li>Remittances as a tool for improved financial sector funding conditions </li></ul>
  3. 3. Remittances in Mediterranean Partner Countries (MPC) and EIB support <ul><li>EIB has long standing relationship with Mediterranean countries </li></ul><ul><li>In Barcelona in 2002 the EIB received a new mandate (FEMIP) … </li></ul><ul><ul><li>increase in finance (EUR2 billion per year), technical assistance, policy dialogue. </li></ul></ul><ul><ul><li>priority on private sector development </li></ul></ul>
  4. 4. <ul><li>… reinforced in 2004 with the introduction of a special FEMIP envelope to enhance private sector lending (extended risk-sharing operations) and the creation of Trust Fund to support initiatives in priority sectors </li></ul><ul><li>For the 2007-2013 period, FEMIP mandate renewed at EUR 8.7 billion by the European Council to finance private sector, regional integration and socio-economic infrastructures. </li></ul>Remittances in Mediterranean Partner Countries (MPC) and EIB support
  5. 5. <ul><li>In this context, the EIB launched a major study on remittances. </li></ul><ul><li>Purpose of study was to determine ways to improve the efficiency of workers’ remittances in Mediterranean countries  </li></ul><ul><li>Eight Mediterranean countries targeted: Algeria, Morocco, Tunisia, Egypt, Jordan, Lebanon, Syria, and Turkey </li></ul>Study on improving the efficiency of workers’ remittances in MPCs
  6. 6. Study on improving the efficiency of workers’ remittances in MPCs: Objectives <ul><li>The study aimed to determine: </li></ul><ul><li>The origin of flows </li></ul><ul><li>The channels of transmission of remittances and associated costs </li></ul><ul><li>The impact of market imperfections in host and recipient countries on costs </li></ul><ul><li>The use of funds in recipient countries and impediments to their efficient allocation </li></ul>
  7. 7. Study on improving the efficiency of workers’ remittances in MPCs: Methodology
  8. 8. Considerable economic importance to MPC’s
  9. 9. Considerable economic importance to MPCs: remittances larger than FDI and ODA combined
  10. 10. Considerable economic importance to MPCs, but not uniformly across the region <ul><li>Remittances as % of GDP (2005), MPC countries </li></ul>
  11. 11. Not as stable as in other parts of the world: oil dependence and renewed migration flows <ul><li>Remittances in USD dollars </li></ul>
  12. 12. Remittances in MPC: diversity of sources… <ul><li>In Algeria, Morocco, Tunisia and Turkey, remittances from the EU account for 85-90% of total </li></ul><ul><li>For Egypt, Jordan, Lebanon, and Syria, Golf countries are the main source (EU accounting for 5-10% of remittances) </li></ul>
  13. 13. ...but little variation regarding use <ul><li>Use of remittances in Mediterranean countries follows a pattern similar to that of other areas </li></ul><ul><ul><li>Consumption is by far the largest item (50%) </li></ul></ul><ul><ul><li>Health and education are another important use (18%) </li></ul></ul><ul><ul><li>Housing investment has some significance (14%) </li></ul></ul><ul><ul><li>Business investment appears to be relatively limited in most countries. Egypt and Tunisia appear exceptional (15 to 18%) </li></ul></ul>
  14. 14. Improving the efficiency of workers’ remittances in Mediterranean countries <ul><li>Market imperfections and information deficiencies </li></ul><ul><ul><li>Exclusivity contracts for MTOs in post offices </li></ul></ul><ul><ul><li>Lack of transparency on transfer costs (particularly as regards exchange rate fees); </li></ul></ul><ul><ul><li>Inadequate information regarding available transfer mechanisms and associated costs, speed and reliability; </li></ul></ul><ul><ul><li>Inadequate payment systems and limited usage of bank accounts in Mediterranean countries. </li></ul></ul><ul><ul><li>Accessibility to banking accounts for emigrants residing in the EU is also limited and banking products are not sufficiently tailored for remitters, with few exceptions. </li></ul></ul><ul><li>Imperfections result in high transactions costs, which could exceed 16 percent of capital sent. </li></ul>
  15. 15. Costs and flows per migrant not too dissimilar across corridors… 2500 2688 1851 3515 Total remittance $ /migrant/year 0.8-8.4 1.5-9.4 2.5-9.4 1-8.8 Cost % France- Algeria Germany- Lebanon Germany- Turkey Spain- Morocco
  16. 16. … but large differences as regards use of banking sector <ul><li>Relatively efficient GER-TK channel, much less GER-LE or FR-AL </li></ul>Mainly MTO Mainly MTO Banks Banks/MTO Main formal channel 150 376 1037 562 Total remittance $/migrant/year through banks 50 7 19 34 % Informal France- Algeria Germany- Lebanon Germany- Turkey Spain- Morocco
  17. 17. What factors might explain these outcomes? <ul><li>Scale effects: Insufficient number of migrants to justify efficient banking network in host country (GER-LE vs GER-TK) </li></ul><ul><li>Size of illegal immigration – (MO-ES vs TK-GER) </li></ul><ul><li>Regulatory restrictions and exchange controls - (TK vs MO or AL) </li></ul><ul><li>Recent emigration waves vs. established immigrant populations </li></ul><ul><li>Underdeveloped financial systems in countries of origin </li></ul>
  18. 18. The FEMIP-EIB contribution Promote efficiency and interconnection of payment systems Disseminate information, promote best practices Reduce transfer costs Channel remittances to formal sector; increase access to banking
  19. 19. Information dissemination and promotion of best practices
  20. 20. The FEMIP-EIB contribution Banking and financial sectors strengthening Remittances contributing to improve funding of financial institutions Financial development leading to economic growth
  21. 21. Securitization of remittances flows <ul><li>Remittances as collateral for the issuance of bonds/notes (future flow securitization): banks transfer the foreign currency flows to an SPV set-up in a well-established financial centre. </li></ul><ul><li>Risk to international investors gets reduced: </li></ul><ul><ul><li>Willingness to pay issues are settled </li></ul></ul><ul><ul><li>Transfer and convertibility risks are mitigated </li></ul></ul>
  22. 22. Securitization of remittances flows <ul><li>Particularly appealing for countries with sub-investment ratings </li></ul><ul><li>In 2005, five SPVs issued more than 4 billion USD in Turkey securitized by diversified payment rights : </li></ul><ul><ul><ul><li>Technically, securitisation encompasses a number of financial transfers (SWIFT transfers MT-100, MT-102, MT-102+, MT-103, MT-103+…, corresponding to transactions such as cash-against-goods, cash-against-document transactions, letter of credit transactions, cheques, as well as workers’ remittances) </li></ul></ul></ul>
  23. 23. EIB support to first remittance securitization operation in Lebanon <ul><li>Lebanon: a good candidate. </li></ul><ul><ul><li>Large and stable remittance flows </li></ul></ul><ul><ul><li>Economy with sky-high public debt levels (200% of GDP)  low sovereign rating (B3/B-)/high T&C risks </li></ul></ul><ul><ul><li>Deep and relatively sophisticated financial sector with a supportive regulatory environment (securitization law); however, heavy exposure to government debt </li></ul></ul>
  24. 24. EIB support to first remittance securitization operation in Lebanon <ul><li>EIB support: </li></ul><ul><ul><ul><li>Catalytic role: bringing together the different players required to setup the deal </li></ul></ul></ul><ul><ul><ul><li>Buyer of SPV notes (50% of 100 million EUR) </li></ul></ul></ul><ul><ul><ul><li>TA support – first SPV seen as a public good, replicable by subsequent SPVs </li></ul></ul></ul>
  25. 25. EIB support to first remittance securitization operation in Lebanon <ul><li>Some difficulties: </li></ul><ul><ul><ul><li>Delicate political environment </li></ul></ul></ul><ul><ul><ul><li>SPV is relatively small => operation costs (which are mostly fixed) are relatively large </li></ul></ul></ul><ul><ul><ul><li>SPV rating? Enhancing mechanisms? </li></ul></ul></ul><ul><li>First SPV expected by end-2007 </li></ul>
  26. 26. Workers Remittances in MPCs: The role of the EIB <ul><ul><li>For copies of the report and updated information, check: </li></ul></ul><ul><ul><li> </li></ul></ul><ul><ul><li>Or contact </li></ul></ul><ul><ul><ul><li>Pedro J. F. de Lima </li></ul></ul></ul><ul><ul><ul><ul><li>[email_address] </li></ul></ul></ul></ul><ul><ul><ul><ul><li>+352 4379 7712 </li></ul></ul></ul></ul>